Forex Trading Strategy

Forex or Forex Exchange Trading is trading foreign currencies. The forex market is the largest financial market in the world with daily trade touching 3 billion dollars. It is also the most liquid market. Till about a decade ago, the forex market had only big banks, multi national corporations and institutional firms participating in the trade. This was because the tools and systems required to trade in forex was available only to them. But the advent and development of internet has changed all that.

Now, small companies and even individuals have the opportunity to be a part of the forex market.

Forex Trading is done in pairs of currencies. There is a bid and ask price for each transaction. The difference between the bid and ask prices is called as spread. The value of this spread determines the profit margin for the trader. There are four currency pairs that dominate the forex market trade. US dollar - Euro, US dollar - Yen, US dollar - Swiss Franc and US dollar - British Pound.

Before investing in the forex market, it is important to study and analyse which currency is likely to appreciate in value with respect to other currencies. For example, if a trader bought 100 Yen at 50 US dollars and sold the 100 Yen at 70 US dollars in a week, the return on investment for him is 20 US dollars.

Forex markets are open 24 hours a day, from Sunday evening to Friday evening. It operates across the globe from Asia to Europe to North America. There are no formal control bodies to govern the forex market. The forex market does not have a formal exchange for transactions. All trading is done between the forex dealers or brokers directly and not through an exchange.

Generally the large international banks determine the bid and ask prices of currencies and hence they have the maximum say in deciding the state of the forex market at any given time.

Until recent times, because there were many regulations like huge minimum transaction sizes that prevented individual players from entering into the forex market. Now there are forex brokers who have made this possible for individuals.

Anyone can buy and sell currencies in any quantity. The individual investors buy and sell through these brokers. Thus, the brokers are able to meet the minimum transaction size required by the forex market. They purchase in large blocks and then distribute it among their investors.

Forex Trading means buying one currency and selling another currency at the same time. Forex market is the largest and the most liquid financial market in the world. Till about a few years ago, Forex market remained predominantly a domain for big financial institutions and multi national companies. With the internet boom, the forex market has opened up for small time, amateur traders.

The Forex Trading does not have a physical, regulated exchange like in the case of stock exchange. There is no formal, central body to control it, no clearing houses to guarantee trade or panels to intervene in case of disputes. The trade is done on a credit agreement basis. Though this lack of formal structure seems strange, it works very well in practice. Forex traders need to compete and cooperate with each other for the market to work.

The Forex Trading Market operates 24 hours a day - opens from 5PM EST on Sundays and closes at 4PM EST on Fridays. The forex market does business to the tune of 3 trillion dollars everyday. It operates in a wide geography, from Asia to Europe to North America making it the most accessible market in the world. There are some big advantages in a forex market. There is no persecution on insider information' and there are no limits on the amount being traded, unlike stock markets.

The Forex Trading Market is an over the counter market, where there are brokers who directly interact and trade currencies of nations. A player in the forex market attempts to understand various currency movements and then buys or sells currencies.

Large international banks are the prime players in the forex market. They generally decide the bid and ask prices of currencies. The difference between the bid ask prices, called spread, actually determines an investor's profits.

Foreign currencies are bought or sold continuously across local or global markets. Profits can be made in rising or falling markets.

Forex Trading is done in currency pairs. Forex rate is the exchange rate between any two currencies. For example, if the rate of EUR Vs USD is 1.09, it means one euro is equivalent to 1.09 US dollars. If a person buys 1000 Euros by paying 1090 USD and after three months finds that the exchange rate is such that 1 Euro is equivalent to 1.25 USD.

If he sells his 1000 Euros now, he will get 1250 USD, thus making a profit of USD 160 in three months.